Among the myriad fiscal responses to the coronavirus pandemic, perhaps none has received more attention in the United States than the federal programs for small businesses. There's good reason.
Small businesses serve as a critical source of economic growth and job creation in the United States, accounting for nearly half of national employment and 43.5% of the nation's gross domestic product, according to the Small Business Administration (SBA). Moreover, it has become clear that small businesses are being disproportionately impacted by the pandemic. Small businesses account for 38% of total business receipts; but in the hard‑hit food and beverage services industry, they account for 65% of the total receipts. Systemic shocks and secular stress created by the pandemic will result in closures of businesses that were otherwise healthy.
In response to the economic pain inflicted by the coronavirus pandemic, the federal government provided small business relief through two separate bills. The landmark Coronavirus Aid, Relief, and Economic Security (CARES) Act funded USD 349 billion in low‑interest loans for small businesses through the Paycheck Protection Program (PPP). With resources rapidly diminished by overwhelming demand, Congress authorized an additional USD 310 billion in a separate bill.
But as attractive as they are, PPP loans have been challenging to administer and implement. The program allows small businesses with fewer than 500 employees or certain franchises the ability to receive loan forgiveness for proceeds, provided 75% of the loan amount is used to cover eight weeks of payroll costs. The balance can finance certain operating expenses such as mortgage interest and utilities. The loan limit is USD 10 million with a fixed 1% interest rate and maturity of two years.
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